As I posted yesterday, Roth & Company is joining Eide Bailly. The move of our practice to the new firm leaves the Tax Update without its historical reason for being, so this will be the last post here. The blog will go dark with the rest of the Roth & Company site ahead of the June 26 effective date of Eide Bailly move.

Since I started blogging here around 2002 , I have had a great time. As we begin a new adventure, I will need to spend extra time working to make our transition successful, so it’s time to bring the Tax Update to a close.

The Eide Bailly people have talked to me about working on their tax communication efforts. I’m excited about the possibilities for the EideBailly.com tax pages.

Thanks to Kathy Morrison, Teresa Boal, and everyone else at Roth & Company for their help and support. There are many others who have been great help, and my apologies for not mentioning you all by name. And thanks especially to all of you who have read the Tax Update over the years.

I learned a lot about taxes, and about more important things. The best lesson I learned came from a post about a man arrested for an especially comical tax-related violation. Two years later I got a call from his wife. She apologetically asked if I could take the post down. Her husband was getting out of prison, and she didn’t want to have this reminder on the net as he tried to put his life back together. I did, of course. I have felt bad ever since for making fun of the man’s troubles, and I have tried to be more kind.

DES MOINES, Iowa — Public accounting firm Roth & Company, PC, will be joining Eide Bailly LLP, a regional certified public accounting and business advisory firm, on June 26.

Roth & Company will assume the Eide Bailly name and add 22 staff and seven partners to the firm. This will be Eide Bailly’s first office in Des Moines and it’s second in Iowa. Combined with the firm’s existing Dubuque office, the addition of Roth & Company will give Eide Bailly 44 staff and 11 partners in the state of Iowa.

“We’re excited to add Roth & Company to our firm. This addition will help us bring even more solutions and services to Iowa businesses,” said Dave Stende, managing partner/CEO of Eide Bailly. “Roth & Company’s culture and commitment to client service are a perfect match for our firm.”

“Eide Bailly is a top 25 firm in the nation, and this union will bring resources and specialization that will be a great asset for our clients and staff,” said Jay Anderson, managing shareholder of Roth & Company. “Our clients will now have access to a number of specialty services and solutions at their fingertips, while keeping the trusted relationships they have built with our staff,” Anderson said. “In addition, our staff will have access to more training and leadership opportunities that will help them shape their careers.”

So let’s talk about my first priority: reforming Iowa’s tax structure. There is no doubt that we can do better. Our tax rates are some of the highest in the nation, and our code books are filled with a patchwork of exemptions, deductions and credits. That’s not how it should be.

Our tax code should be simple. It should be fair. And it should inspire – not inhibit – growth. Because the bottom line is this: a simple, more competitive tax code makes it easier for businesses to grow and expand and creates lasting careers for middle-class Iowans.

Fans of Iowa tax reform couldn’t ask for more from the opening speech. The chances look better than they have in a long time for improvements in Iowa’s tax law when the General Assembly meets again next year. Senate Ways and Means Chair has already floated ideas for tax reform. The Tax Foundation has done a lot of the heavy lifting already with its Iowa Tax Reform Options report of revenue-neutral strategies for Iowa’s income tax.

Still, tax reform is hard. Those “exemptions, deductions and credits” are there because somebody had the influence to get them into the tax law in the first place. Those people are still around. If the Governor and the legislative leadership get behind a plan, though, it just might get done.

This is great. You can have your kid take out the maximum amount of loans and pay them off with tax deductible dollars. Too bad it doesn’t work.

If you can direct your contribution to a specific person, that usually kills the deduction.

TaxGrrrl,Court Rules That Religious Freedom Law Is Not A Free Pass for Tax Evasion. “In this case, Tyms-Bey argued that paying state taxes would be a burden on his religious beliefs. Prosecutors responded that the act of paying taxes does not interfere with religious beliefs. They also noted that Tyms-Bey has never identified his religion; documents filed with the court indicate that ‘he is a sovereign citizen.'”

Lew Taishoff, THERE THEY GO AGAIN. “So remember, if the magic moment is 5 p.m., using the self-service kiosk at 5:01 p.m. may not help you. You’ll get the next day’s date on the machine-made postage.”

Stephen Entin, Tax Treatment of Structures Under Expensing (Tax Policy Blog). “A large part of the benefit of expensing, over seventy percent, is due to the inclusion of outlays for structures. Their inclusion in the expensing provision would add significantly to economic growth and job creation, and would return higher revenue to the Treasury in the out-years.”

Meg Wiehe, State Rundown 5/24: Several States Scramble to Finalize Budgets (Tax Justice Blog). “This week, Kansas lawmakers continued work on fixing the fiscal mess created by tax cuts in recent years, as legislators in Louisiana, Minnesota, Oklahoma, and West Virginia attempted to wrap up difficult budget negotiations before their sessions come to an end, and Delaware lawmakers advanced a corporate tax increase as one piece of a plan to close that state’s budget shortfall.”

It’s been a long time. Terry Branstad, who has spent more time as Iowa’s Governor than anyone has been governor anywhere, steps down today to become the Ambassador to China. He served from 1983 to 1999, and then again since 2011. His tenure included the farm crisis of the 1980s and the ridiculous floods of 1993, and the continuing depopulation of rural counties. Unemployment has fallen from 8.5% when he took office in the Reagan administration to 2.9% He has seen financial services and tech startups begin to eclipse Iowa’s old manufacturing and agricultural mainstays.

While Iowa has changed a lot, Iowa’s income tax would be familiar to a Rip Van Preparer who fell asleep in 1983. While the top individual rate has come down from 13% to 8.98%, the top corporate rate remains 12% (highest in the country) and the structure of the tax system, with its deduction for federal taxes and its unusual two-column married filing separately on a combined return filing status, has changed little. The biggest change in the income tax has been a proliferation of special interest breaks and credits, pegged to cost the state $277 million in 2017.

The biggest tax changes in the Branstad era have been in property taxes and sales taxes. In 2013 he signed a sweeping reform of the state’s property tax system. In 2015 his administration changed the rules for the manufacturing supplies sales tax exemption, leading to legislation that reformed a long-standing piece of bad tax policy.

As he leaves office, the legislature appears ready to finally address income tax reform next year. Whether incoming Governor Kim Reynolds will embrace the tax credit reforms needed to truly bring down Iowa rates remains to be seen.

By itself, the border adjustment directly addresses two major problems with the corporate income tax. First, it eliminates the ability and incentive for corporations to shift their profits out of the United States. Second, it would greatly simplify business taxation by eliminating the need for complex current-law transfer pricing rules and anti-base erosion provisions. In addition, the border adjustment would raise additional revenue over the next decade, which would help fund the transition to a cash-flow business tax. The components of the cash-flow tax (most notably, expensing) would greatly improve the incentive for companies to invest and would grow the long-run size of the U.S. economy.

So far, the border adjustment seems to be a step too far for Congress.

Sam Brunson, On Marginal and Effective Tax Rates (Surly Subgroup). “First, people have no idea the difference between effective and marginal rates, and will use whichever is most convenient for their point. And second, people vastly overestimate the amount they pay in taxes.”

Howard Gleckman, Trump’s Can Opener Budget. (TaxVox) “You know the old joke: An economist and a seaman are stranded on a desert island with only canned food to eat. But they have no way to open the containers. ‘What do we do,’ asks the sailor. ‘Assume a can opener,’ replies the economist.”

Shiver me timber. Iowa’s weird capital gain deduction confuses even the Department of Revenue. The Department was confused enough to allow a 2006 capital gain deduction for a land sale that didn’t qualify. But that doesn’t mean it has to allow the deduction for another non-qualifying sale in 2013, according to a protest response released this week.

The taxpayer purchased land from his father’s estate in April 2005. The following year the taxpayer sold five acres of the land, claiming the Iowa capital gain deduction.

Alert readers may have already spotted the problem. To qualify a real estate sale for the Iowa capital gain deduction, you have to meet two tests:

You have to have held the real estate for at least 10 years, and

The real estate has to have been used in a trade or business in which you “materially participated” for the ten years preceding the sale.

If you qualify, Iowa doesn’t tax the capital gain. Of course, many land sales fail to meet one or the other of these two tests.

There is another way to get a capital gain deduction related to real estate. If you sell timber which you have held for one year that qualifies for the federal Sec. 631(a) capital gain tax break, you also qualify. That was the deduction claimed in 2006. The Department of Revenue says oops:

You also indicated that you sold the first five acre lot in 2006. At that time through some misunderstanding the Department allowed a partial capital gain deduction for the sale of timber. The purchaser of the first five acre lot bought the lot to construct a new home to live in. Subsequent to the purchase the new owner has built a new home. The Department should not have granted the partial capital gain deduction on the first sale, as this was simply the sale of land.

As the statute of limitations has expired on the 2006 sale, the Department’s mistake stands. But that doesn’t mean the Department has to make the same mistake again. The taxpayer claimed the deduction for another lot sale in 2013. From the letter:

In the current case the purchaser of the second five acre lot also purchased this land to construct a home. This purchaser has since built a new home on this five acre lot. In the protest you have argued that you feel the Department should extend a similar capital gain deduction that you received from the first sale. In a review of the protest it seems clear that the new owner of the land from the 2013 sale purchased the land to construct a new home. Subsequent to the land sale the new owner has built a new home. Given this information the Department asserts that this is strictly the sale of land, not the sale of timber.

As a sale of land, rather than timber, the ten-year holding period had to be met. As the land was purchased in 2005, this test is failed, and the material participation issue doesn’t even come into play.

The Moral? As Mom said, two wrongs don’t make a right. It’s hard to qualify for the capital gain deduction, and the Department looks at every claim for it.

The person accused of a 2016 attempt to use a web-based federal student-aid tool to illegally obtain taxpayer information is a Louisiana-based private investigator who used the tool to target then-presidential candidate Donald J. Trump, court records obtained by Diverse show.

The records allege that when Jordan Hamlett, 31, met FBI agents in the atrium of the Embassy Suites in Baton Rouge, he “immediately volunteered that he had committed the crime and he even sounded proud of what he had done.”

In September 2016, TIGTA detected an attempted access to the AGI of a prominent individual. When we investigated the attempted access, we determined that the FAFSA application and the DRT were used in this attempt. Since FAFSA is a Department of Education application, we notified the Education OIG and we notified the IRS Privacy, Governmental Liaison and Disclosure (PGLD) program office. We initiated a joint investigation with the Education OIG that included the Cyber Crimes Task Force. The investigation identified the individual responsible for the attempted access and he was arrested. This case is still proceeding through the court system. In November 2016, we noticed another attempted access of the same prominent individual’s AGI through the FAFSA and the DRT, this time, from an entirely different location.

Paul Neiffer, Are You Taming The Deferred Tax Monster?! “Current deferred taxes is comprised of the estimated taxes owed on deferring crop sales and prepaying farm expenses.” A problem only farmers have because it arises from tax breaks that only farmers get.

The specific tax issues that are of concern are the treatment of flow-throughs, like-kind exchanges, depreciation, carried interest, the low-income housing tax credit and deductibility of business interest.

This shows how industries work to game the system to keep their own special breaks. Yet somehow I think people would need apartments regardless of what the tax law has to say.

Leslie Book, Legal Practice and Mental Health (Procedurally Taxing). “As someone who has over the years benefitted from confronting mental health issues with the care of professionals, and who lost a dear friend to suicide, I believe that tax professionals and the organizations where they work should have at their disposal resources to help through inevitable tough times that are part of life.”

Jack Townsend, Restitution Permits Double Assessments But Only One Collection. “The problem with which the Court grappled, at bottom, was whether so increasing the deficiency amount to include the amount already assessed would permit the IRS to assess the increased amount if ‘redetermined’ by the Court and thus have two assessments that, in part, are for the same tax liability.”

Russ Fox, WSOP and Taxes: 2017 Update. “The poker world is about to descend on Las Vegas for the World Series of Poker (WSOP) and a score of other tournament series. The tax environment has changed, so I’ve decided to do a thorough update of the tax situation.”

An unfortunate development today from the U.S. Supreme Court, where the justices declined to hear several challenges to a retroactive tax law passed by Michigan. In 2014, Michigan decided that a tax compact it had signed in 1967 was no longer advantageous and repealed it, retroactively to 2008. This harmed a number of business taxpayers who had been counting on tax refunds.

Tax Justice Blog, WE’RE NOW BLOGGING AT justtaxesblog.org. “ITEP today is pleased to announce that we’re launching an overhauled website that better reflects the work of our organization and makes our federal and state tax policy research more accessible.”

The IRS has already announced the 2018 maximum contributions for Health Savings Accounts (Rev. Proc. 2017-37). It’s a good excuse to revisit the tax advantages of HSAs:

-You may deduct contributions to HSAs without having to itemize deductions.

-Withdrawals from HSAs are tax-free to the extent of amounts used to pay out-of-pocket qualified medical expenses incurred after the HSA is established – even if you could have taken funds out of your HSA to pay them in an earlier year, but didn’t.

-Earnings on undistributed funds in HSAs accumulate tax-free.

– HSA funds distributed after age 65 for non-medical expenses are taxed like traditional IRA distributions, but without the IRA required minimum distribution rules.

-There is no income phase-out for HSA deductions.

These features make the HSA a good tax savings device for qualified taxpayers. In order to be eligible to make an HSA contribution, you have to be covered under a “high deductible health plan,” and you have no non-permitted coverage. You can’t be enrolled in Medicare, and you can’t be claimed as a dependent on someone else’s return.

For 2018, a high deductible plan is one with an annual deductible of at least $1,350 for self-only coverage and $2,700 for family coverage. Maximum permitted annual out-of-pocket costs can’t exceed $6,650 for self-only coverage and $13,300 for family coverage.

The maximum contribution for taxpayers with self-only coverage is $3,450 for 2018. That compares to $3,400 for 2017. For family coverage, the maximum contribution is $6,900 in 2018, compared to the 2017 max of $6,750.

While some gig workers mean to cheat Uncle Sam, experts say others are bewildered by tax requirements that can be almost as complex for the owner of a microbusiness as for a much larger firm. Many know nothing about Schedule C (for a small business), payroll taxes and quarterly estimated payments. Often they’re unaware of valuable write-offs as well.

Roger McEowen, Employer-Provided Meals and Lodging. “The IRS, at least in certain parts of the country, appears to have an audit program that examines farm and ranch corporations on the meals and lodging issue. In light of that, today’s post takes a look at the basic rules and what might cause concern for the IRS.”

Lew Taishoff, THE FACTS ARE EVERYTHING. “But I suggest we all, bloggers, litigants, attorneys, USTCPs, and even Judges, must ‘with a joyful mind, bear through life like a torch in flame’ the simple rule: The facts are everything.”

To make tax reform permanent under these budget rules, policymakers will need to consider various base-broadening provisions that can offset revenue losses from rate reductions and full expensing. On the corporate tax side, this might mean eliminating the interest deduction and enacting a border adjustment.

As one panelist mentioned, businesses benefit from the interest deduction and might oppose getting rid of that tax break as a stand-alone, but stakeholders will need to look at any tax reform package in its entirety to truly judge its benefits. Limiting interest deductibility “may be necessary as part of a broader solution,” he concluded.

In addition, tax reform represents an opportunity to not only lower the tax burden, but also raise revenue more efficiently. Revenue-neutral tax reform can, in fact, be pro-growth.

The hard part is always to convince enough people of the advantages of lower rates and simplicity to overcome those who are privileged under the current system and will fight hard to keep their special breaks.

But they cashed the check! If you owe a lot of tax, it’s understandable that you would try to get the IRS to settle for partial payment. Unfortunately, the IRS has a say in the matter.

S corporation owners are supposed to pick up the corporate taxable income on their 1040s. A Florida couple owning two S corporations apparently didn’t do so for 2011 and 2012. The IRS noticed and assessed them about $2.9 million in additional tax and another $697,000 in penalties. They had other tax issues too, going back to 2006.

The couple tried to settle, sending the IRS a proposed offer in compromise on Form 656-L — but with a twist. Tax Court Judge Paris explains:

Petitioners substantially modified the terms and conditions of the Form 656-L by crossing out sentences in subsections (b) and (d) and crossing out entirely subsections (k), (l), and (m). Along with their OIC, petitioners tendered a $3 million check as satisfaction of their 2006 through 2012 tax liabilities.

The IRS cashed the check, but a few weeks later told the taxpayers that they were returning the cash and rejecting the offer because of the modifications to the form. The couple argued that it was too late — the check had been cashed, so the thing was settled.

It doesn’t work that way. Judge Paris:

Petitioners further argue that by cashing their check, the IRS accepted their OIC. This argument is incorrect. The IRS cashing a check does not necessarily mean that the IRS has accepted the offer.

So the couple tried another argument (citations omitted):

Alternatively, petitioners argue that their OIC was deemed accepted under the UCC because their offer was not rejected within 90 days. The facts surrounding this OIC and the IRS’ response — set forth in petitioners’ response to respondent’s motion for partial summary judgment, see supra note 5 — clearly show the IRS’ timely rejection of their OIC and return of their $3 million deposit. More importantly, the U.S. Government, as the sovereign, is not bound by State statutes such as the UCC.

Nice try, but the decision on this issue went to the IRS.

The Moral? Getting an offer in compromise through the IRS is not easy, despite what you might hear on late night radio shows. It’s a lot easier to get the IRS to cash a check, but it’s not the same thing.

Iowa Congressman David Young has introduced the “Freedom from the ACA Tax Penalty Act” in reaction to the likely unavailability of ACA exchange policies in Iowa starting in 2018. From his press release: “His legislation would waive this tax penalty and requirement under Obamacare for Iowans, and any American, who has no access to health coverage because of the failing health care law.”

W-2 or bust. It seems like at least one client messes up the treatment of health insurance for employee-owners every year. If an S corporation pays for health insurance for an employee who owns at least 2% of the corporation, it is not a “tax-free fringe benefit,” like it would be for any other employee. Under IRS Notice 2008-1, the corporation is supposed to put the insurance on the employee’s W-2, box 1, but exclude it from Medicare wages. The employee is then supposed to take the deduction for “self-employed health insurance” for the same amount on line 29 of the 1040.

The treatment seems like a long way around to get to the same place. Unfortunately, the IRS position is that there is no other proper way to report such deductions. This rule applies not only to S corporation shareholders, but also to their family members who work for the business.

If the preparer doesn’t find out that the S corporation payroll department made this mistake until the shareholder’s tax information comes in, it poses a problem. The right answer is to amend all four of the prior payroll returns and issue a new W-2, but it often isn’t a practical answer, at least to the client. That makes now a good time to deal with it for 2017 while there is only one payroll tax return in the current year that might be wrong, and no W-2s to fix yet.

The IRS looked at it differently and brought in some additional data. In 2012 the Los Angeles County Office of the Assessor valued the first property at $435,324 ($189,032 improvement $236,292 land), the second at $795,000 ($305,800 improvements $489,200 land) and the third at $532,807 ($163,940 improvements $368,867 land). That gave improvement percentages on each of the three properties of 44.4%, 38% and 31% respectively cutting the depreciation deduction for he year by more than 50% for a deficiency of $5,297.

A good discussion of the tax issues involved, and the lack of a “rule of thumb” for allocating costs between land and buildings.

Kristine Tidgren,Regularly Review Those Estate Planning Documents (Ag Docket). “…a poorly drafted “right to purchase” clause and a failure to update the trust upon the exchange of property spawned expensive litigation…litigation from which no one emerged victorious.”

Jason Dinesen, If Newly Self-Employed, Beware of Self-Employment Tax. “Self-employment tax is the bane of existence for many sole proprietors. And it’s often a surprise to people who are new to self-employment — they file their tax return and find out that things often turn out much differently when you’re self-employed.”

Leslie Book, Court Rules Abusive Tax Shelter Penalty Has No SOL; Laches Also Not A Defense (Procedurally Taxing). “Over the last couple of decades there has been a vast increase in the number of civil penalties in the Code. When Congress gets around to revising the civil penalty regime, it would be well served to look at these non return based penalties and impose some outside limits on when the government can assess these penalties.”

Under the current U.S. tax code, businesses are not generally allowed to deduct the full cost of their capital investments – such as equipment, buildings, inventory, and intangible property – in the year that the investments are made. Instead, companies are required to deduct their investment costs over long periods of time, according to a set of depreciation schedules. Not only is the depreciation system one of the most complicated aspects of the federal tax code, but there is also good reason to believe that requiring businesses to deduct their capital expenditures over such long periods of time discourages them from making investments in the first place.

In recent years, Congress has enacted a temporary provision known as bonus expensing, which allows businesses to immediately deduct 50 percent of the cost of their investments in equipment, machinery, and other short-lived property. This is a significant provision: about 67 percent of all business investment is eligible for bonus expensing, and economists have found strong evidence that the provision has led to higher private investment levels overall.

I doubt this will pass unless part of a bigger tax reform effort. It’s not clear anyone is capable of leading such an effort in Washington right now.

Thomson Reuters Tax & Accounting Blog, Trump Administration’s Principles for Tax Reform. “On the individual side the focus is on expanding the tax base and lowering the tax rates to support the expressed goals of tax simplification and tax relief. These would be accomplished primarily by eliminating deductions currently available and reducing the top tax rate and number of brackets.”

Richard Auxier, A Tale of Two Tax Triggers (TaxVox). “Triggers can help states provide fiscally responsible tax relief—if designed well. They can also make it easy for lawmakers to pass large tax cuts that imperil future budgets—if executed poorly.” Triggers, which implement rate cuts only if financial goals are met, might help Iowa to pass tax reform without risking a fiscal mess.

Expensive tidiness. Iowa imposes a 5% registration tax on the transfer of motor vehicles. There is an exemption for some transfers that we normally think of as tax-free, like partnership and corporation formations. This exemption is narrower than the corresponding income tax exemptions, as an Iowa businessman learned recently.

The Iowa Department of Revenue examined transfers of vehicles among single-member LLCs controlled by Iowa entrepreneur Gerald Kirke. He transferred to his wholly-owned LLC Wild Rose Leasing vehicles owned by two other LLCs he owned: Fratellos, which had run a now-defunct restaurant; and K Properties, a “farming/land management company which cash rents farm land and warehouse space.” They wanted to tidy up their vehicle ownership, with all of the cars in one entity.

For federal tax purposes, these LLCs are all “disregarded entities.” Their activities are taxed to their owner, and transactions between them are considered no more taxable than taking money out of your wallet and putting it in your pocket.

The vehicle registration tax exclusion as read by the Department of Revenue is narrower. From the Iowa letter:

The “continuing the business” provision caused problems here. Fratellos had closed, so there was no business to continue. Wild Rose Leasing didn’t continue the other K Properties businesses; they continued in their old entity. That was enough to trigger the 5% registration tax, according to the Department of Revenue.

The Moral? Just because federal tax law ignores the existence of an LLC doesn’t require a state to do so. When you have a transaction that is tax-free under federal law, it still can trigger state sales and registration taxes. It might seem whimsical and unfair, but it takes more than that to stop a determined state revenue department.

Do you want to know why people hate politics? Politicians? Just look to Oregon. Just last November, voters in Oregon rejected the creation of a gross receipts tax by a 59 to 41% margin. That is a landslide…

You would think that after a crushing defeat, pro gross receipts people would give it a rest. But six months later, they are back at it – legislatively. The people who want to adopt a gross receipts tax are taking their case to the legislature. That is right. After the citizens soundly rejected the idea, the pro taxers are asking the legislature to ignore them. I am not sure why that happens. It seems downright insulting to me.

Gross receipts taxes are an awful idea that seems to be gaining favor in the states in spite of the awfulness.

Margaret Van Houten, Digital Assets Bill Signed by Governor Branstad (Davis Brown Tax Law Blog): “This Act allows individuals to give their fiduciaries the authority to gain access to their digital assets including accounts, information, media, and electronically stored documents, whether on a personal computer, tablet, cell phone, or in the cloud. It also provides a legal means to pass them along to their heirs in accordance with their wishes.”

Robert D. Flach, DEAR GRADUATE. “As it is college graduation time I thought I would reprint some advice to recent graduates that I had given in a post from a couple of years back.”

Andrew Mitchel has 5 New Tax Charts. These are great helps in navigating branch transactions.

Liz Cuthbertson, UK Property – still the real deal? (Tax Plus Blog, U.K.). “Further tax complexity for real estate purchases has not cooled down and, from 6 April 2017, all UK residential property is in the scope of UK inheritance tax, regardless of the vehicle it is held in.”

There are a couple of reasons why the benefits are so skewed to upper-income households. First, nearly two-thirds of those with pass-through income are already in the 15 percent bracket or below. Thus, they wouldn’t benefit at all from cutting the pass-through rate to 15 percent. They are already there.

Second, while most pass-through filers are low- or middle-income people, most pass-through income is made by a relative handful of business owners. They may be doctors, lawyers, partners in investment firms, or even owners of large non-publicly traded businesses. TPC estimates that this year, nearly 90 percent of pass-through income will go to the top 20 percent of households and half to the top one percent. And the benefits of the rate cuts follow the money.

While I think individual rates are too high, a pass-through cut is the wrong answer. People will game the system, and the tax law will become even more complicated as patches are enacted to fight the gaming. Better to make individual and corporate top rates the same, with integration so that corporation income isn’t taxed twice. A dividends-paid deduction with an excise on dividends paid to tax-exempts might be the way to go.